Why LePage’s bet on big business overlooks small-business reality

Portland Mayor Michael Brennan cuts the ceremonial red ribbon to officially open the Portland Technology Park, a 40-acre site devoted to growing the area's life sciences industry, in 2013.

Gov. Paul LePage touted a grand strategy for job creation last week in his annual State of the State address.

The Republican governor’s Open for Business Zones would welcome employers who hire at least 1,500 people and invest $50 million, offering them tax breaks, discounted electricity, access to capital and workforce training programs, and a right-to-work environment that would free nonunion workers of having to pay fees for union representation.

But LePage’s emphasis on large business attraction as a major source for job creation overlooks the reality that the vast majority of jobs created in Maine will likely come from within the state — and in small increments.

Few in Maine would dispute the benefit of a company setting up shop here and hiring 1,500 residents. But the statistics on job creation show that’s an unlikely scenario. According to the Brookings Institution, 95 percent of all job gains annually in an average state come from within, as existing businesses expand and entrepreneurs create new businesses. By emphasizing the attraction of big businesses to Maine, LePage is focusing on the slice of the job creation pie that’s least likely to come to fruition.

LePage understands the powerful impact on Maine’s economy from the expansion of Maine’s tens of thousands of small businesses. He paid it lip service during his State of the State address.

“There are 40,000 small businesses in Maine,” he said. “Our state has roughly 130,000 micro-businesses. They employ 170,000 people. They drive our economy. If they could each add one more job, that would transform our economy.”

The policy he proposed in that address, however, didn’t match that rhetoric.

Open for Business Zones don’t only fly in the face of job creation statistics. An evaluation of Maine’s economic development programs released by the LePage administration a few hours before the governor’s speech pointed out that state programs that guarantee small businesses access to capital at key times in their development yield some of the most promising returns on investment for the state.

The evaluation found a Maine Technology Institute loan program that offers businesses research and development loans of up to $500,000 to support product commercialization yielded a 12.4 percent, three-year return on investment to the state in the form of state revenues. Employment grew 19 percent on average at the 32 participating businesses from 2011 to 2012.

Two additional loan programs administered by the Finance Authority of Maine yielded an 18.6 percent, three-year return on investment to the state in the form of revenues. FAME’s commercial loan insurance program insures private loans of up to $4.2 million, and the agency’s Economic Recovery Loan Program offers businesses “gap” financing that helps them improve productivity and remain viable. In 2012, the loan programs helped 248 businesses create 810 jobs and retain 3,900. The three-year default rate was low — 0.56 percent.

LePage has shown resistance as governor to embracing some state programs that help developing businesses secure capital at key times. In 2012, he vetoed a $20 million bond that would have funded research and development investments through the Maine Technology Institute. Last year, he declined to sign a bill funding the FAME-administered Maine Seed Capital Tax Credit, which is available to those who invest in Maine startups. LePage’s inaction caused a delay in the credit’s availability.

The evaluation of incentive programs also examined Maine’s decade-old Pine Tree Development Zones, an initiative of former Democratic Gov. John Baldacci. Participating businesses — which come from a range of eligible sectors — qualify for state tax exemptions for up to 10 years and reduced electric rates. LePage’s Open for Business Zones would have much in common.

The 285 participating businesses created 5,010 new jobs in 2012 and retained 4,878, though the analysis doesn’t detail whether those jobs would have been lost without the Pine Tree Development Zone benefits. The evaluation did find the program was an expensive one for the state, resulting in a net loss of state revenues.

Maine’s economic development programs can be effective, showing the benefits of guaranteeing access to capital for small businesses. Even Pine Tree Development Zones aid businesses that, on average, employ 35 people.

The evaluation of the state’s economic development programs offers policymakers insight on what can aid the state’s job creation efforts. It points in the direction of helping small businesses secure capital, improve productivity and commercialize products.

Attracting a 1,500-employee company to Maine would certainly benefit the state’s economy. But the state has a better shot of realizing growth with a mix of programs that help small businesses that are here and that will be created here.